Wall Street Isn’t Worth It

by John Quiggin on November 14, 2013

That’s the title of my new piece at Jacobin, which links back to a variety of discussions we’ve had here at CT, in particular this one from Ingrid. Mankiw, whom Ingrid cites, offers an implicit defence of the 1 per cent, implying though not quite asserting, that the gains accruing to those in this group (largely senior executives and the financial sector) have been the price we pay for a process that benefits everyone, yielding a Pareto improvement. As Ingrid says, Pareto improvements aren’t as self-evidently desirable as Mankiw assumes. My argument focuses on Mankiw’s factual premise, concluding that the expansion of the financial sector has made the majority of people worse off. This implies that a response to the global financial crisis focused on attacking the financial sector is feasible as well as being, in my view, politically necessary as an alternative to rightwing populism.

Jacobin doesn’t appear to have a comments section, so feel free to comment and criticise here. I’ve had an interesting discussion with Daniel on Twitter already, but it’s not really a great medium when more than a few people are involved.

{ 155 comments }

1

beamish 11.14.13 at 8:39 pm

2

Zamfir 11.14.13 at 8:41 pm

You might want to provide a link. Current it’s easily found on the front pafe., but that might not last…

Kudos for the piece. All sounds reasonable to the point of obviousness, but I don’t think I’ve ever seen it put down this clear, this direct.

3

John Quiggin 11.14.13 at 8:45 pm

D’oh! Fixed now.

4

Ben 11.14.13 at 9:10 pm

“the expansion of the financial sector has made the majority of people worse off”

OMG you are literally insane.

Fundamental theorems of welfare economics.

End of discussion.

5

JRHulls 11.14.13 at 9:21 pm

Couldn’t agree more. Wrote on this somewhat earlier, cross-posted on OECD website. The basic question as to why, if the financial sector’s job is the efficient distribution of capital, have we not seen a level commensurate with the massive increase in their wealth?

http://somewhatlogically.com/?p=730

6

Main Street Muse 11.14.13 at 9:28 pm

Frankly, the issue isn’t whether or not the banks should be smaller, more socially focused. The issue is that their business model as it exists today is simply unsustainable. Witness 2008 crash. Witness the extraordinary welfare programs set up by nations throughout the world to “rescue” the sector from collapse, from itself.

I’m sure you’ve all seen the #AskJPM debacle on twitter. If not, here’s a peek: http://nyti.ms/1bEXDGY

Another JPM story covered in the NY Times is about their work “expanding their influence in China” – by paying off relatives of those in power: http://nyti.ms/17tAapK

What the financial sector is doing is abhorrently corrupt – and yet they seem to ride the surf unscathed and over-bonused. Who’s been arrested for the flagrant mortgage fraud that led up to the crash? Financial sector offers a despicable business model, unless you’re an Ivy League grad eager for the big bucks…

(And please, let’s not ignore the Ivy League’s role in preparing these MBAs for the high-life on Wall Street.)

7

SamChevre 11.14.13 at 9:35 pm

Frankly, the issue isn’t whether or not the banks should be smaller, more socially focused. The issue is that their business model as it exists today is simply unsustainable.

But this is, and has always been, true of every form of fractional reserve banking. (I still hold that the 2008 crash is a perfectly classic bank run.)

8

dsquared 11.14.13 at 9:36 pm

I know what you mean about Twitter not being ideal, but my experience of financial debates with me in them in CT comments is substantially worse, so I’ll try to do a storify or something to rearrange our discussion into some sort of logical order.

9

John Quiggin 11.14.13 at 9:39 pm

Somebody (Eszter?) ought to do a medium-message analysis of how different social media shape discussions of various topics.

10

dsquared 11.14.13 at 9:39 pm

Other than to say that whoever “Ben” is at #4, if you were in any position to lecture John Quiggin on the fundamental theorems of welfare economics, you would know why it would be a bad idea to lecture John Quiggin on the fundamental theorems of welfare economics. So thanks for ending your part of the discussion.

11

mojrim 11.14.13 at 10:36 pm

Hate to tell you Ben, but that’s not an argument at all, merely an ad hominem assertion followed by appeal to authority. You managed two logical fallacies in three sentences; impressive.

12

bob mcmanus 11.14.13 at 10:41 pm

A thirty-year experiment with financial liberalization has proved, beyond any reasonable doubt, that the growth of Wall Street has come at the expense of society as a whole, and that the earnings it generates are not justified by a contribution to social value. The Left needs to recognize that fact and embrace rhetoric and policies that reflect it.

Which part of “the Left” hasn’t recognized that fact nor embraced anti-Finance, anti-neoliberal rhetoric? I didn’t liberalize Finance or deregulate Wall Street, and the people who did aren’t “the Left”, aren’t listening to you, and likely never will.

The politics of this is about allying with the existing “Left” to attack, without mercy or kindness, the center. Which to your credit, by posting at Jacobin, you appear to have accepted.

How does this work? Whatever Warren or Obama or Dodd or Krugman or Delong or the centre-left in Europe wants or says will help is utterly unacceptable and a sellout to Wall Street. You stake a position left of center, and you move left when the center does.

13

john c. halasz 11.14.13 at 10:56 pm

IFAICT the problem with JQ’s piece is its reliance on the marginal-product-to-factors account of distribution as the mark of market-induced efficiency, (let alone equity). Are such marginal products always measurable, (or even definable or even meaningful)? And doesn’t measured data based on such an analytic assumption just reproduce prevailing “market” distributions anyway? ISTM what is at issue is rather enormous rent-extractions by the various “games” in the financial sector, which can’t be defined as productive profits, often enough occurring in neo-liberal fashion through government enforcement of corporate privileges. Making clear the private “tax” on the rest of the productive economy involved in more direct fashion would seem to be in order.

Also there is little indication as to just why the financial sector grew to such an extent.

My favorite example of a pure rent extraction is the “negative basis trade”, in which supposedly riskless and costless profits were manufactured out of thin air, apparently. Figuring out how such “profits” could be at all possible is a bit of a puzzle. But IIRC writing CDS contracts for such “trades” on banks’ books was the prime cause of the collapse of AIG.

14

Omega Centauri 11.14.13 at 10:57 pm

As one who considers the expansion of the financial sector to have been disastrous, do you have anything like proof of that assertion? At this point I have nothing to throw at skeptics that will work. It simply becomes my assertion versus their ideology.

15

bob mcmanus 11.14.13 at 10:58 pm

I read it more carefully, and you have it covered. I kinda like your program

I simply suggest we start with “expropriate them all,” scare them silly, and then let the center-left negotiate down to ending carried interest etc. That was what worked last time.
The violent socialist threat. This is who the Left is.

16

js. 11.14.13 at 11:05 pm

That’s a really great piece, and extremely helpful for this non-economist. Thanks.

(Surely Ben was being facetious? “OMG”?)

17

Main Street Muse 11.14.13 at 11:21 pm

“But this is, and has always been, true of every form of fractional reserve banking. (I still hold that the 2008 crash is a perfectly classic bank run.)”

So explain to me about the bank runs we had in the 1960s and the 1970s. (Did we have them?)

And explain to me why “classic bank run” can be used to justify the excessive fraud that led up to the crash. Tell me how a NINJA loan is remotely a good business model for a sustainable bank. And explain to me how using Repo 105 to cook the books fits within the framework of a “classic bank run.” And explain to me why we need to maintain a system that requires trillions in federal support (helping even companies like GE Capital) when the “leaders” make a boo-boo. And explain to me why “leaders” who make such an enormous boo-boo get massive bonuses as their reward. There was nothing “classic” about the 2008 crash.

18

Main Street Muse 11.14.13 at 11:27 pm

“As one who considers the expansion of the financial sector to have been disastrous, do you have anything like proof of that assertion? At this point I have nothing to throw at skeptics that will work. It simply becomes my assertion versus their ideology.”

Omega Centuri – explain to me how the crash of 2008 and the subsequent bailout does not indicate disastrous expansion of the financial sector.

A sector that requires trillions of dollars in support is extremely ill. (TARP was just a drop in the bucket of what banks got to help them through the recession.) Ask any businessman how a “healthy” company in a “healthy” sector must receive such drastic assistance from the federal government in order to survive – in order for the global economy not to collapse entirely. It is simply not possible to be healthy and require such welfare from the US government.

19

Donald Johnson 11.14.13 at 11:29 pm

I also thought ben was being satirical, but don’t know.

20

mojrim 11.14.13 at 11:34 pm

Except bob mcmanus @12 that this is not the position of the mainstream left at all. Warren, Krugman, et. al. may want to regulate The Street (and The City) to limit its depredations, but neither is proposing to raze it back to useful size. Obama comes from the same DLC mold as the Clintons and fundamentally believes those institutions to be useful and productive allies. What JQ is talking about is born from old-school, labor progressivism.

That may be left of the current center, but that goal post has been moved rightward for the past 35 years, taking the median wage and household net worth with it.

21

ZM 11.14.13 at 11:37 pm

John Quiggin, I have read the piece through, and have some initial comments. In agreement that this is the critical decade, I hope being a little critical is welcome, and this is written expecting that you agree with the report by the CCA you worked on in which the goal is contract and converge by between 2040 and 2050.

You write “society as a whole would be better off” but you do not define who you include in “society” – every little person in the round world? Those in developed countries? Managers? Cleaners?

“A political strategy based on cutting the financial sector down to size…”
I do not know if it is wise to declare enemies before trying to win people over? For instance, as a toddler I was friends with twins, and they came in and out of my life since, and they were the children of a certain loose group of 60s/70s people – so us children, as Belle Waring might know, might share some certain perspectives on our elders – one of the twins now works for PwC – but to declare war on finance and its people so preemptively would perhaps be such a clashing sort of thing that the opportunity to win people over might be ruined. We were talking about this last night as we discussed Sunday’s climate change day of action – if there is pageantry, like moomba, it is more open to people to feel they might be welcome, than to preemptively declare war. Also – because we are all complicit in our society’s economic system we ought to approach it from a place of outraged humility, including ourselves.

“…must involve a direct conflict with the financial sector, and must imply a substantial contraction in the size, wealth, and power of that sector”
This is true. But the contract and converge method implies a substantial contraction in the wealth and power of ourselves at our various positions as well.

“A necessary condition for such a strategy to be feasible is the premise that the incomes flowing to the financial sector come at the expense… of working people.”
Again, which working people – London solicitors or phillipino telephone workers?

“The great moderation as an illusion….tens of millions of households saw their savings wiped out”
This is because, as anyone who hides bars of gold under their mattress knows, money and savings based on money are imagined, in the sense of Benedict Anderson’s view of Imagined Communities. You might use the word construct. Or I’m sure there are other words to choose.

“Liberalization of markets in goods and services has been accompanied by continual financial repression”
This is difficult to word. but, to take it to a great magnitude, imagine you are conquered by a great civilisation and become the agent of the civilisation so much as to see barbarism everywhere without.

22

John Quiggin 11.14.13 at 11:41 pm

Poe’s Law is an endless source of fascination on the Internetz. I’m going for genuine.

23

ZM 11.14.13 at 11:47 pm

Well of course I am genuine, what are the errors in my comments?

24

js. 11.14.13 at 11:56 pm

ZM: JQ was talking about Ben’s comment I imagine (@4), which others have also commented on.

25

adam.smith 11.15.13 at 12:06 am

but since you ask – what’s wrong with your comments is the pearl-clutching concern for the feelings of the poor lil’ bankers ;)
Given their “popularity” (see MSM’s delightful links to the latest JPM PR disaster) it also doesn’t strike me as bad political strategy to rail against “them”. In fact, that’s how most successful populist movements work. And since we’re not going to get an organized socialist movement based on labor/class based organizing in the US, populism would seem to be the way to go for progressive politics.

26

The Raven 11.15.13 at 12:13 am

You have, I think, made a strong pragmatic, perhaps technocratic, case against the current system, and for a more regulated model. But how do we get from here to there?

One problem, I think, is that we do not seem to have party platforms that support the day-in day-out work of governance. We need better stories. The old union movement had ideas like solidarity, struggle, and so on. Capitalism has, to this day, its Horatio Alger stories. Steve Jobs! Bill Gates! Even fascism had—has—the folk, the empire, the greatness of our people, anti-terrorism, and so on. But what stirring speeches can you make about banking regulation? Or for that matter routine trash pickups, building roads, and the like? “Make no little plans…” But little plans, and many of them, are exactly what we need.

Governments the world over are derived from associations of the wealthy and powerful. All attempted alternatives have so far failed. Given that, we somehow need to be able to find competent and compassionate leaders and rulers and put them in charge and our current governmental and property forms seem to be failing the task.

Two specific points on the article:
1. I think Mitt Romney belongs on the list of destroyers. He made his fortune dismantling US industry and sending it to China.
2. Exchange rates and, indeed, all large-scale markets, do not seem to have equilibria. Thus a need for governance.

27

ZM 11.15.13 at 12:13 am

Dear adam.smith I do not wear strings of pearls to clutch, though you seemed skilled at grasping at straws.

Successful populist movements are by definition supported by multitudes of people. If you think railing at bankers is the best way to drum up a group, that’s up to you I guess, but given that it appears to me from your writing you’re not really in the position wealth wise and climate change impact wise of Filipino telephone workers, it seems to me that your approach is about drumming up support by convincing the already privileged in world terms that they are hard done by. This seems to me I’ll founded and I’ll considered and likely to ensure only ill ends.

28

ZM 11.15.13 at 12:14 am

All those I’lls were meant to be ills – autocorrect!

29

ZM 11.15.13 at 12:18 am

“Gates! Even fascism had—has—the folk”

Aargh. Denounce those folk singing fascists! one by one, dosey do. Yes Peter Seeger the fascist! Jean Ritchie the fascist! Fairport Convention all fascists! Shirley Collins a fascist! Vashti Bunyan a fascist! Incredible Stringband fascists! ….

30

ZM 11.15.13 at 12:22 am

“Make no little plans…” But little plans, and many of them, are exactly what we need.”

If you are going to denounce town planners as well, at the very least you could share with us your favourites. For myself I am rather fond of Howard and Olmsted, I may think of some others given time.

For yourself?

31

The Raven 11.15.13 at 12:24 am

ZM, that was a reference the idiomatic Nazi use of the word, “volk.”

32

UserGoogol 11.15.13 at 12:25 am

Separating useless financial institutions from the useful ones and letting them fail still seems dangerous. Even if a financial institution is engaged in utterly useless frivolities, it still contains money and if money suddenly ceases to exist, then that is a shock to the economy all the same. If the money is still available to be spent, then losing the money causes a drop in spending.

33

ZM 11.15.13 at 12:27 am

I am perfectly aware of the German use of volk. Folklore and songs are there for people of all hues and times, associating it purely with fascism is a great disservice.

34

John Quiggin 11.15.13 at 12:30 am

ZM, cool down and take a break from commenting for a little while. We are getting derailed here.

35

UserGoogol 11.15.13 at 12:38 am

Me@32: …or more specifically, institutions which behave in a vaguely bank-like manner (expanding the money supply by allowing people to withdraw money while simultaneously maintaining whatever investments) need to be protected on some level even if those investments are wildly irresponsible and/or useless, although we should certainly try to prevent them from engaging in such investments.

36

mojrim 11.15.13 at 12:47 am

ZM@29: You seem unacquainted with the basics of fascism. If he had used ‘volk’ you would be more sympathetic?

TheRaven@26: You have correctly stated the problem, that humans are moved by stories not hard facts. The story of some friend’s friend’s Canadian cousin coming to the states for surgery trumps the hard data of lifespan, infant mortality, and per-capita expense. So let’s write the new story, something grounded in the American mythology of self-made bootstraps.

Thoughts without organization: money has to go to productive industry not get hoovered up by middle men; finance is a middle man; real americans build tangible things not 15 syllable financial instruments. Mitt Romney is clearly the poster child, we can contrast him against engineers, researchers, people that start small companies which actually build things and extend lives. We can contrast William Boeing with James McNerney, perhaps? Just some ideas.

37

John Quiggin 11.15.13 at 12:55 am

@35 I think this is largely a matter of consumer protection. Large minimum accounts, and an explicit acknowledgement that the government promises *not* to give you any help whatsoever if you lose your money.

The stock market is a pretty good model. People lost their shirts on the NASDAQ in 2000, and there was no investor bailout (although Greenspan did give a collective bailout to the financial sector).

38

Ronan(rf) 11.15.13 at 2:08 am

One thing I’m not sure on, is the ‘bank bashing’ meant to primarily be a political tactic to rejuvenate the left? Or is it meant to have results in rolling back (for want of a better term) the financial sector?
If the second, I’m wondering about this line:

“The real transformation has been in corporate and international finance “

I guess what I’m wondering is how do you actually roll back the financial sector, in any meaningful way, if (one of ) the main factors driving its growth has been international finance?
And by extension how do you create a manageable financial system domestically, and enable growth/access to capital in developing countries? (Or is there really any link between the two)
In other words, I’m not sure what the alternative is (beyond relatively minor regulatory changes)

39

Main Street Muse 11.15.13 at 2:30 am

“One thing I’m not sure on, is the ‘bank bashing’ meant to primarily be a political tactic to rejuvenate the left?”

What is this “bank bashing”? Really – take a look at their business model. Tell me why it’s a ‘bash’ to speak honestly about the rather devastating impact their corrupt practices have on the economy. It is not a ‘bash’ to acknowledge that a sector that required massive federal assistance – beyond the scale that can be easily understood even by the most imaginative person – needs reform. To survive as a nation, these banks have to be reined in. Their corrupt practices are drowning the economy, while boosting their profits. They make 30% of the profit in America. According to a Reuters report, “US bank earnings rose to $42.2 billion in the second quarter of 2013.” http://reut.rs/1at3AYi

This Reuters story points to the truth: “‘Something structurally amiss when so much financial activity is borderline,'” says an unnamed hedge fund trader in the story. Yes – very true!
http://reut.rs/HTGfWg

Calling for banking reform is not “populist” or “bank bashing” – it’s calling banks to change absolutely unsustainable – and corrupt – business behavior.

40

Tim Wilkinson 11.15.13 at 2:30 am

I really wish the Labour Party (UK) would take your advice. In the particular circumstances of he UK, it seems to me that going on the offensive against the financial sector is necessary if it is to neutralise the Tory propaganda which claims that Labour left the country in a (studiedly ill-defined) mess, leaving the Cons have to ‘deal with the deficit’.

What is needed is to put Labour’s responsibility in proper perspective: a failure to rein in financial speculators (as here: http://www.theguardian.com/politics/2011/sep/26/ed-balls-sorry-labour-failures but without the implied sop to deficit hawks). Then proposing serious action against banksters, which will put the Cons on the back foot and highlight the fact that they themselves were and are utterly committed to deregulation. If that can be carried through then the Cons’ constant references to Labour ‘having got us into this mess’, mumble deficit, can be to some extent neutralised – yes we did, but it’s a Banker Mess, not a Deficit Mess.

Meanwhile Cameron has announced that, as some of us thought obvious since before the election, he wants to cut back or privatise public services as an end in itself: http://www.theguardian.com/politics/2013/nov/11/david-cameron-policy-shift-leaner-efficient-state – and Labour should be shouting about this and pointing out that this explains why the Cons have been cutting ‘too far and too fast’ as Lab’s rather mealy-mouthed protests would put it.

The third prong of this attack should then really be the rather more uphill struggle of trying to point out that the exact size of the deficit was never that important, still less urgent, an issue. I’d favour some sort of ritual sacking of Liam Byrne, explicitly for bringing the party into disrepute with his “I’m afraid there is no money” note, but it’s too late for that.

(Veering wildly O/T now but I should have thought Labour should be trying to publicise the fact that the Cons appear to be being pushed around by the big 6 energy companies, who are demanding that ‘green levies’ be removed ‘from bills’ (all of the media, as well as ConDem pols, seem to describe the situation in these terms) as a condition of not increasing bills by as much as they are threatening to. (This arrangement suits the Tories anyway for a number of reasonably obvious reasons and was probably stage-managed by agreement, but they won’t admit to that, obviously.)

41

Ronan(rf) 11.15.13 at 3:09 am

Main Street Muse

I was just using the language of the article.
I’m just wondering what populist politics in the major countries and a campaign to reform the financial sector would mean for smaller countries, developing countries etc (perhaps nothing, perhaps it would be positive, perhaps there’s some happy medium between Bretton Woods and now..I dont know)

42

Bruce Wilder 11.15.13 at 3:19 am

I liked the Jacobin piece very much, including its matter-of-fact tone and reliance on conventional frames.

The establishment left in the U.S. and Europe generally chose, in the surprise of crisis, preservationism, chose to join in the rescues and in a policy of preserving the financial sector. It’s proven to be bad rhetoric, bad policy and poisonous politics.

Getting out of “me, too” rhetoric legitimizing a deficit fetish and “free market” models of institutional reform isn’t going to be easy for any part of the establishment Left. There’s no reliable means of commitment, which cannot be undone after election, by promises of speaking fees or other favors or threats from the banksters and their corporate allies, short of a blood oath to carry forward lethal measures, followed by immediate action.

I think a case can be made that a large part of bankster wealth is extractive and fraudulent. That’s why it makes so much sense to attack the sector with electric pruning shears set at max power. But, the case would have to be made, and against strong headwinds of counter-propaganda. And, it would have to include a rationalization for accepting a substantial economic setback and disruption, as the price of justice, because these psychopaths are not likely to go gently into night, and even if they did, the disruption would still be substantial. Politically, I doubt there’s ever likely to be a chance for rational reform outside of serious crisis, and crisis reaching the doors of the elite — it’s only when the economic setback is already a given, and no longer a choice, that it makes sense to grab for justice at such a price. But, the left would have to ready, mentally and tactically, to seize the moment, in a way the establishment left was decidedly not, in 2007 and since.

43

Bruce Wilder 11.15.13 at 3:32 am

Ronan(rf) re: “what populist politics in the major countries and a campaign to reform the financial sector would mean for smaller countries, developing countries etc “

U.S. hegemony in organizing international trade and finance is pretty close to its sell-by date. I would expect something akin to complete collapse well before 2020, and probably a great deal of de-stabilization in the next three or four years, as things in Europe and China swing wildly out of control. A new regime will have to be constructed, of some kind; continuing with the old one is simply not an option.

I know global business corporations and global banks would like a regime of unimpeded rent extraction, enforced by trade treaties and technocratic institutions, no matter how much misery is inflicted. Peak oil, climate change, and ecological collapse imply that the global pie is shrinking, and one way to meet the constraints is reduce consumption demand, by pressing down hard on mass consumption, and contain the violence that results with a repressive state apparatus, where possible, and encourage continual low-tech slaughter, where it cannot be contained beyond that. It is a brutal vision, which is emerging.

The question is, does the left have an alternative?

44

Mao Cheng Ji 11.15.13 at 3:48 am

Well, perhaps the effects of globalization need to be added to the story. It’s not easy to “attack the sector” when it’s not really your country’s sector, but a supranational institution that is fluid, and largely outside of the control of any political entity. The attack would have to come with a dose of nationalism, and that makes the left-right dichotomy problematic.

45

SoU 11.15.13 at 5:11 am

It would be useful to somehow measure the distortionary effects of the finance industry on the economic fortunes of real individuals. I recall a study a number of months ago that tried to analyze the local rise in cost of living as wealthier families moved into surrounding areas. Something like that, but with a broader scope. Obviously there is a lot of methodology snooze-stuff in there, and it won’t be in any way precise, but getting out a number or two that people can use to tether this sort of argument to their real lives would be useful if this is to serve as a political strategy.

And as people above are saying, the left doesn’t have much of a coherent positive vision at this point ( although I think the youth is moving towards one ), but in the interim, some good populist fist shaking can serve just as well.

46

ZM 11.15.13 at 5:25 am

Bruce Wilder, I am sure many people are working on alternatives, both *theoretically* and *practically*, such as the author of this paper to take one example:

“Degrowth Implies Voluntary Simplicity: Overcoming Barriers to Sustainable Consumption”
Samuel Alexander
University of Melbourne – Office for Environmental Programs; Simplicity Institute
February 23, 2012
Abstract:
This paper explores how consumer societies are structurally set up to oppose practices of sustainable consumption and how those structural obstacles could be overcome.

Our lifestyle decisions, especially our consumption decisions, are not made in a vacuum. Instead, they are made within social, economic, and political structures of constraint, and those structures make some lifestyle decisions easy or necessary and other lifestyle decisions difficult or impossible. Change the social, economic, and political structures, however, and different consumption practices would or could emerge. With a practical focus, this paper examines the extent to which people in consumer societies are ‘locked in’ to high consumption, energy-intensive lifestyles, and it explores ways that structural changes could facilitate a societal transition to practices of more sustainable consumption.

This subject should be of interest to all those broadly engaged in work on sustainability. But it should be of particular interest to those who have been convinced that the richest nations, if indeed they are serious about realising a sustainable world, ought to be initiating a degrowth process of planned economic contraction, with the aim of moving toward a socially desirable, ecologically sustainable, steady state economy. A degrowth or steady state economy will never emerge voluntarily within societies that are generally comprised of individuals seeking ever-higher levels of income and consumption. It follows that any transition to such an economy will depend upon people in those societies transitioning away from consumer lifestyles and embracing lifestyles of reduced and restrained consumption.”

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2009698

47

Dr. Hilarius 11.15.13 at 5:25 am

The development of CDOs and various instruments for investment hedging, to my poor, non-economist mind, has transformed a lot of financial activity into something more akin to casino gambling than traditional investing. As Goldman Sachs demonstrated, there is money to be made betting against your own products. Money is changing hands but not in any productive (I understand this is a slippery term) manner other than for the recipients of the money.

The decline of traditional pensions in favor of 401Ks also has contributed to the growth of the financial sector. Want to save or retire? Be ready to pay out to financial advisors, stock brokers, fund managers or similar creatures. Every effort to privatize social security is an effort to give the financial sector another pie to plunder. And like the house in a casino, the financial sector always wins, with it’s gains increasing as a function of betting volume.

48

Bruce Wilder 11.15.13 at 5:57 am

SoU @ 45

Is it so impractical to ask people to look around, and correctly interpret aspects of their everyday lives?

Student loans, charter schools, payday lenders, the escalation of medical costs, the crappiness of health insurance, the high price of anything with intellectual property attached, businesses destroyed by equity capital vampires, . . . etc.

There are real costs to the extreme dispersion of incomes, but “inequality” is not de-natured abstraction, it is real oppression and real extraction on a day to day basis. There’s plenty of evidence in everyday headlines to be really, really angry about.

49

Bruce Wilder 11.15.13 at 6:13 am

ZM @ 46

I’m with ya, bro.

My view is that just behind the maya of the financial system driving everyone to work too hard for too little, as peons, is the maya of the b.s. economy, of marketing and persuasion. Sure, we pay too much for financial services, which make (most of) us poorer. We also pay too much for coffee and brand-name everything.

Here’s the thing: we have this economy, driven from a small elite above, which is all about monopolizing resources and externalizing costs, and it is destroying the planet. We have to figure out how to manage the common wealth, while there still is some left. Nothing is more urgent than finding ways to bring the psychopaths, who are running things, under control.

We’ve got a long way to go. Brad DeLong, a reliable barometer of centrist conceits, is touting “equitable growth”. Clearly, he hasn’t gotten the memo.

50

Watson Ladd 11.15.13 at 6:37 am

We’re already having a major problem keeping poor Americans in the financial system. Increasing minimum accounts would force more of them out. I also don’t see what is surprising about Wall Street doing well right now: interest rates are low, while corporate profits are high. To the extent Wall Street borrows short term and loans long-term, it should be very profitable right now.

As for the broader question of neoliberalism in the developed nation welfare states, the financial capital gaining over non-financial capital thesis lacks a mechanism. Varying exchange rates introduce costs split between exporters and importers: countries shouldn’t experience a gross cost without a major trade imbalance, but the way the trade imbalances are the US has experienced a huge gain from them. What I think is more likely is that the financial firms of the developed countries are more international than the manufacturing ones, hence the profit shift. Exporting money is easier than trains.

The “Great Risk Shift” ignores what employees are discovering today: pensions had risks that were not priced in when they were issued, concerning the solvency of the promiser. With defined contribution plans these risks vanish.

The post-1973 shift is really about capital and labor, with labor suddenly getting the short end of the stick more than in the preceding era. This has a lot to do with unionization and the loss of support from the government, redistribution of tax money, the failure of the US to reform its retirement system from the regressive, wasteful one we have now, cuts in spending on education at the secondary and tertiary level, probably marginal tax rates, and many other reasons. But decreased regulation of finance or fluctuating exchange rates aren’t large enough to explain this broad shift.

51

ZM 11.15.13 at 6:40 am

“But decreased regulation of finance or fluctuating exchange rates aren’t large enough to explain this broad shift”

Maybe it’s the cultural logic of late capitalism that’s done the trick?

52

ZM 11.15.13 at 6:43 am

Bruce Wilder, thanks sister :)

53

john c. halasz 11.15.13 at 6:50 am

@49:

OMG! You’ve single-handedly abolished Poe’s law.

54

Zamfir 11.15.13 at 6:51 am

Watson says: “I also don’t see what is surprising about Wall Street doing well right now: interest rates are low, while corporate profits are high. To the extent Wall Street borrows short term and loans long-term, it should be very profitable right now.”

And there’s nothing surprising about corporate profits being high while interest rates are low? That’s just the way it is, nothing to see, keep walking?

55

robotslave 11.15.13 at 7:04 am

I can certainly understand the desire to go back to a system where the townsfolk and the local shopkeepers all go down to the Building and Loan to make deposits and take out loans with George Bailey, and we send Speculators and Fat Cats into the City to claw whatever gobbets they can from each others’ swollen, perfumed flesh.

The problem, though, is that Building and Loan isn’t gone because Specs & Cats came through and gobbled it all down like a plague of bespoke-suited locusts*.

B&L went away because 1) the borrowers went away, and 2) the depositors went away. And 1) and 2) happened because the townsfolk and shopkeepers both found they could get better prices by doing direct finance in the capital markets**, instead of indirect finance through George Bailey Banks.

Today’s global money market simply doesn’t work the same way the national banking systems of yore*** did. We do have massive problems today. We do need regulation. But any reform has to address the system as it presently exists, and simply wishing it all away and wistfully invoking Jimmy Stewart Banking does not do that.

I also think it’s rather absurd to suggest that we ought to abandon the idea of a wealth tax, in favor of an unspecified scheme of regulatory reform, simply because some of the people who want to reverse economic inequality get shamefully squirmy at the prospect of risking their Serious Public Intellectual credentials by wholeheartedly, without caveat, promoting plans to tax the rich.

 

 * though they didn’t use their best manners when the carcass was thrown on the table either, now did they

 ** by buying shares in MMMFs and issuing bonds****, respectively. And better prices, though perhaps not better terms; there was added risk, but the risk was acceptable (and clear, until RMBS made it opaque, but Building and Loan was long gone by then).

 *** or several other systems in earlier but still modern, industrialized yores, for that matter. All of which, let us please remember, were not replaced by later systems simply because everyone got bored of buying and selling money the same way their parents did.

 **** among other things, of course

56

John Quiggin 11.15.13 at 7:16 am

@robotslave Try reading the article, then rewriting your comment without the snark. You’ll find that every point you made so cleverly was already anticipated. Meanwhile, I’ll have a quiet laugh about the idea that the current generation outsmarted our parents by discovering that private businesses could issue bonds.

57

robotslave 11.15.13 at 7:28 am

@56

I did read the article, John, and I did not find your anticipations (such as they were) particularly persuasive.

You have not articulated any hint of a path to get from the global financial system we have now back to Jimmy Stewart banking, and “it’s not (presently) politically feasible (especially without people like me promoting it)” is a shameful way to excuse your reluctance to advocate taxing the rich.

58

John Quiggin 11.15.13 at 8:04 am

Can i suggest a remedial reading course, then. You could practise on this article :

A quick hint since you seem to be unaware. For the last several years, the term “the 1 per cent”, which appears prominently in the post and article, has become widely used as a pejorative description of the rich, with the implication that they should be taxed more. So, it’s a fair bet that a writer who uses this term is advocating taxing the rich (Mankiw being an exception to this).

I’m aware that this term doesn’t appear in Jimmy Stewart movies or in paeans to financial innovation such as the ones you appear to be cribbing from. But it is, nonetheless, common, and indeed produced a rightwing riposte “the 47 per cent”, which played a notable role in the 2012 US election.

59

Tol Ondro 11.15.13 at 9:31 am

Everything fits together: This is published in the Jacobin, jacobins bring the medicine of Dr. Guillotin, which is just perfect for anything that needs cutting down to size.
I’m all for it. Caveat marieantoinettes.

60

Richard H. Serlin 11.15.13 at 9:35 am

“As Ingrid says, Pareto improvements aren’t as self-evidently desirable as Mankiw assumes.”

One big problem is in assuming that the choice is between only doing a Pareto improvement and doing nothing. Then, yes, Pareto improvement is better; we should do it. But we have more choices, like between doing a Pareto improvement and a total societal utils improvement. We can choose between a Pareto option that makes the ultra-rich richer and leaves everyone else the same, or a choice that leaves the almost everyone higher utility and a tiny rich minority lower utility, for far greater total societal utils.

Plus, Pareto improvements are a fantasy in the real world. With 7 billion people in an ultra-complicated messy, emotional, positional externalities world, there is no substantial societal change will not make even one person worse off in utility.

Perhaps the most profound and immensely powerful libertarian/plutocrat bias in academic economics is the extreme focus on Pareto optimality as opposed to total societal utils optimality. I had a post on this that was in Mark Thoma’s links. It’s at:

http://richardhserlin.blogspot.com/2012/05/perhaps-biggest-libertarian-bias-in.html

61

Chaz 11.15.13 at 9:39 am

JQ: Do you propose restoration of Bretton Woods?

Separately, I don’t think saying “the 1 percent” implies anything about taxation. It implies that the 1% are richer and more powerful than they deserve to be and the rest of us are poorer and weaker than we deserve to be. The proposed remedy varies from person to person, and might include increased taxation, apathetic resignation, expropriation, or guillotines. I suspect there are also brutish people on right wing sites using “the 1 percent” as a term of idolization as we speak.

62

Robert 11.15.13 at 9:43 am

John, you might want to put Mirowski’s “Never Let a Serious Crisis Go To Waste” on your reading list. Mirowski has nice things to say about Zombie Economics at first. Then later he is quite critical. I think he says, among other things, that you cannot imagine microeconomics is in trouble too; it’s not just macroeconomics. (He obviously wrote his book before reading your recent post.)

His style is even more maximalist than usual.

63

bad Jim 11.15.13 at 9:50 am

The difference between this and the commentary on health care reform is that the details are different (you’re killing grandma)(you’re taking away my plan)(contraception violates my deepest convictions) but the relationship to the underlying system is the same: this is the way we’ve always done this/any attempt to change it will make things worse/we’ve got the best of all possible worlds.

The polls actually reveal a consensus that everyone’s getting the shit end of the stick. It’s not out of the question that it could coalesce around more egalitarian policies. It doesn’t seem likely at the moment, given how riven we are by regional, racial, and cultural rivalries, but there’s reason to think we’re agreeing with ourselves at the top of our voices.

Nevertheless, we’ll probably manage to screw it up. We’ll ravage the planet and leave it to the jellyfish, of whom nothing is expected.

64

ZM 11.15.13 at 9:58 am

Well it’s an odd and extemely cold comfort to think of the oceans being bequeathed to the jellyfish once all the sons and daughters of your son’s sons and your daughter’s daughters and your son’s daughters and daughter’s sons all run to some kind of peaceless end.

65

Barry 11.15.13 at 11:30 am

ZM, perhaps writing in an English which makes sense and has a point would help people understand you – if that’s your point.

66

Barry 11.15.13 at 11:32 am

Watson Ladd 11.15.13 at 6:37 am

” We’re already having a major problem keeping poor Americans in the financial system. Increasing minimum accounts would force more of them out. I also don’t see what is surprising about Wall Street doing well right now: interest rates are low, while corporate profits are high. To the extent Wall Street borrows short term and loans long-term, it should be very profitable right now.”

John didn’t state it in absolutely clear terms, but it was quite clear to me that he meant this to apply to the ‘casino’ end of the financial world. Hint – when he said no government guarantee, did you think that he meant this for the entire retail banking system?

67

ZM 11.15.13 at 11:37 am

I would say my English has a tendency to be pointed, if anything. What in particular is confounding about my wording?

68

mattski 11.15.13 at 12:40 pm

ZM,

What in particular is confounding about my wording?

You have gotten a fair amount of feedback concerning your posting style. Have you been able to hear it?

69

Cranky Observer 11.15.13 at 1:01 pm

= = = robotslave @ 7:04: B&L went away because 1) the borrowers went away, and 2) the depositors went away. And 1) and 2) happened because the townsfolk and shopkeepers both found they could get better prices by doing direct finance in the capital markets**, instead of indirect finance through George Bailey Banks. = = =

Perhaps you could recount the history of Talman Federal Savings & Loan in Chicago. No? From 1970 forward Talman’s principals apparently determined to (1) stay in the city proper (2) continue lending the in city proper (3) lend to customers of all races, ethnic groups, economic levels as long as they could demonstrate reasonable ability to pay[1] (4) to ignore all redlining, blockbusting, and other race- and class-based impediments to banking and keep doing their job even when the “shade” of a neighborhood changed. By 1989 [2] Talman’s market share of home and small business lending in the Chicago south region was probably around 40%.

So what happened to Talman? Everyone suddenly decide to go downtown to the white-shoe banks for “better rates”? Wal-Mart move in with some sort of always low interest home lending program? No, John McCain & Charles Keating destroyed the S&L industry via fraud. In the resulting clampdown – where were the regulators when McCain & Co were sucking the money out? – the lending standards of the white-shoe banks were applied to S&Ls, and those that (like Talman) were perfectly sound but didn’t have the big portfolios of tract mansion and car dealership loans out in the wealthy suburbs couldn’t meet those standards and were merged into the big-dollar banks by regulators. Result: termination of neighborhood lending programs and devastation of many neighborhoods and zones that were hanging on or redeveloping. But yeah, those were just inevitable economic forces of nature.

Cranky

[1] Determined the old-fashioned way, by examining savings account passbooks, calling supervisors to assess job attendance, making allowances for differing cultural circumstances, etc. Not just pulling a (then still secret) FICO score.

[2] When I obtained my first home mortgage from Talman after I was redlined by my parents’ white-shoe bank for living in a neighborhood they deemed too “sketchy” (other words were used as well involving racial classifications, since they thought they knew me).

70

William Timberman 11.15.13 at 1:42 pm

The content, not to mention the location of the Jacobin article made me smile; the tone made me laugh out loud — rather like the Paul Krugman is tired of trying to reason with you people poster did. I remember long debates in SDS workshops almost 50 years ago about how to mobilize the poor and the working class. There were fewer debates about the former after Tom Hayden and NCUP ran afoul of Amiri Baraka in Newark, and fewer about the latter after Richard Nixon proved that he was more on top of the subject than we were.

Managing the dynamics of discontent and the mechanisms of revolution is more like riding a tiger than a horse, and no one so far has demonstrated that it can be done at all, let alone with justice uppermost in everyone’s mind while we’re doing it. Still, if the thoughtful John Quiggin thinks that nothing short of mass mobilization, etc., can save us, I’d be the last one here (excepting maybe halasz, mcmanus, and Wilder) to say him nay.

71

bob mcmanus 11.15.13 at 1:44 pm

But yeah, those were just inevitable economic forces of nature.

As a Marxist, yes, you bet they were. (Maybe not nature)

Capital will compete itself into collapse.

You are not going to reform or regulate this system into stable equilibrium. We have tried for what 175 years, and here we are again. The best reformers can do is to socialize at least half of it, finance being in the non-market half.

72

Trader Joe 11.15.13 at 1:59 pm

A rather one sided piece, IMO, but it doesn’t mean the views are entirely without merit. It does however reflect a deeply populist view of what ‘Wall Street’ is as portrayed in the media, rather than what it is by those who show up to work each day.

One particular chafe in point- pointing out salaries of the the likes of Jamie Diamond and Dick Fuld as though that is somehow representative of the industry is about the same as pointing at George Clooney and Angelina Jolie as indicative of the entire film industry. Its an easy mark for rhetoric, but is indicative of little as many industries produce high individual earners.

I’m not going to take on the point of whether these men deserve what they get – most would agree its hard to justify. But in the glorious “contracted” Wall Street that’s described it wouldn’t be these guys that get reduced – instead it would be the literally millions who work in the engine-rooms of the industry, earn good white color money, but don’t define themselves as “1%” or even “10%” ers. These would be the victims of a smaller Wall Street.

There’s other points that could be made, but that would be my initial reaction and again one that is separate and apart from the individual merits of some of the underlying points which could be debated.

73

Ronan(rf) 11.15.13 at 2:00 pm

Bruce Wilder @43

Here are some links about the changing face of global financial capitalism

https://blogs.wellesley.edu/jjoyce/2013/11/11/strategic-retreat-or-tactical-pause/

I cant make heads or tails of it. What do you think?

74

bob mcmanus 11.15.13 at 2:00 pm

The Marxists have several stories about the Post-War, one of which involves rising wages, labour complacency, declining profits (not necessarily related to wages), capital resurgence and wage depression, overaccumulation and overconfidence, great moderation direct cause of great recession. Minsky can work here, if we take him seriously.

I won’t go so far as to say right now that the New Deal was a disaster, but moderates and liberals to me always catastrophically underestimate what is at stake, how bad it can get if we let capital run free or try to regulate capital. It can give us WWII. It can destroy the human race.

Capital has no heart and really doesn’t care if we all die. Don’t try to reason with it.

Kill it first.

75

Main Street Muse 11.15.13 at 2:13 pm

“You are not going to reform or regulate this system into stable equilibrium. We have tried for what 175 years, and here we are again.”

Really? So banks have been bouncing from crisis to crisis since the Depression? Wait… no. There was a time when banks did not suck all the money out of the system periodically when they failed catastrophically.

What happened to destabilize the financial sector? Reagan happened. Deregulation happened. The results? The Continental Bank bailout in mid-1980s. Savings and loan crisis of the 1980s. Long Term Capital Management failure in the late 1990s. The feeding frenzy (“we eat what we kill!”) that led up to the mortgage crisis. The collapse of the global financial system in 2008.

It IS possible to regulate banks into a semblance of order. We just became ideologically persuaded to stop doing that. And crises have ensued, repeatedly, and with growing significance and impact.

Please realize we HAVE socialized a huge portion of the financial sector – the loss portion of it. Profits – bankers keep. Losses, we pay for. A horrible nod to socialism in our capitalist society.

76

Mao Cheng Ji 11.15.13 at 2:33 pm

“Profits – bankers keep. Losses, we pay for. A horrible nod to socialism in our capitalist society.”

That’s not a node to socialism, it’s just the powerful taking all they can. Works the same way in every system. Reminds me of a scene in Bertolucci’s Novecento where a storm destroys half of the harvest and the Padrone informs the peasants that their wages will be cut in half. “When we harvest double we don’t get double pay”,one of the peasants says.

77

Barry 11.15.13 at 3:22 pm

Trader Joe: “I’m not going to take on the point of whether these men deserve what they get – most would agree its hard to justify. But in the glorious “contracted” Wall Street that’s described it wouldn’t be these guys that get reduced – instead it would be the literally millions who work in the engine-rooms of the industry, earn good white color money, but don’t define themselves as “1%” or even “10%” ers. These would be the victims of a smaller Wall Street.”

Right now those cogs in the system are frankly mainly stealing and destroying wealth.
It’s like an army invading and laying waste to a place – most are not generals, they’re privates.

78

ZM 11.15.13 at 3:46 pm

“You have gotten a fair amount of feedback concerning your posting style. Have you been able to hear it?”

In terms of complaints against my wording by commenters such as “talk less, say more” (I’m understanding that as a substitute for stop your gabbing BTW and if it’s not i think it’s somewhat weird to be told to affect a laconic attitude to suit another commenter). I’m actually not sure what they’re exactly talking about b/c i think my English is perfectly fine and readable, so I am not sure if the couple of commenters who have been outraged enough to suggest I write differently have trouble understanding words or would like me to shut up or would actually prefer me to bring another meaning to the table?

79

ZM 11.15.13 at 4:24 pm

My reply to 68 is in moderation for some reason.

Ronan(rf), I think the authors point comes across at the end of that piece quite well.

In terms of the title’s question, i think they’re saying this is a tactical pause as finance pivots to the emerging economies:

” On the one hand, bank lending in the U.S. and Europe is likely to be limited as governments enact new regulations and Europe continues to deal with its debt crisis.

But investors in those countries may look to the emerging and “frontier” markets for higher returns based on their growth, while increased income in the emerging markets will drive a demand for liquid financial instruments that will spill over into foreign markets.

In addition, firms in those countries will look to expand their operations in other developing economies through investments.

Financial flows may follow a new course, but will not be contained for long.”

I was at the gallery the other day and came across an old Javanese (if I remember correctly) icon of Kubera (Sanskrit figure of wealth/riches/jewels/metals and the underworld, like Pluto and Dis)
“As the treasurer of the riches of the world, Kubera is prescribed to be worshipped. Kubera also credited money to the god Venkateshwara (a form of the god Vishnu) for his marriage with Padmavati. In remembrance of this, the reason devotees go to Tirupati to donate money in Venkateshwara’s Hundi (“Donation pot”), is so that he can pay it back to Kubera. “
I think this lends support to David Graeber’s debt thesis (which is happily related to your comment and the OP on finance), although I haven’t read it just about it, so perhaps he already mentioned this?

80

MPAVictoria 11.15.13 at 4:59 pm

“earn good white color money”

Would love to know what you consider good white collar money Joe. Bet it is more than I make in 2 or 3 years.

81

Bruce Wilder 11.15.13 at 5:16 pm

We could joke about it: you have to destroy the village to save it.

But, it’s true. As Quiggin said, if the financial sector, at the margin, is adding value to the economy, then shrinking the sector is harmful, but, if it is not — and the evidence is abundant that it is not — then shrinking the sector, and reallocating those cogs in the system, is the way to make things better. The prosperity of plutocratic Manhatten entailed destroying Detroit and Akron and much of the manufacturing midwest — did anyone worry about those cogs, as their jobs, pensions and homes were taken from them.

For me, the critical part of Quiggin’s essay is the latter, political part, not the discussion of the financial sector, but the discussion of the political and rhetorical response of the left. We’ve been trying to make the system work, as it is, instead of making a system that can work. It’s the problem with Obamacare at base: trying to make a system of for-profit insurance and health services work, with a Rube-Goldberg system of subsidies. And, surprise! — the insurance companies have spent 4 years coming up with new ways to screw people. Meanwhile, on Wall Street, the regulated are seriously outpacing the would-be Dodd-Frank regulators.

I’m not agreeing, here, with bob mcmanus — at least I don’t think I am, but maybe I’m coming close to his point-of-view. I don’t know what it would mean to “kill Capital”. Reification of capitalism, as an evil distinct from tragic propensities of human beings, has always seemed misguided to me. “Crooked Timber” for building any society, any political economy implies deliberately building the institutions that support and constrain us to better behavior and better governance.

We have tried the experiment of laissez faire, of unrestrained private economic power, and there are powerful political forces determined to defend, and even extend that experiment. But, there are assembled no forces to oppose that experiment, to end that experiment. Instead, the establishment left argues for its values, but tries to adapt to the system as it now is, to make greed work, to make privatizing everything, work.

The financial sector is the key to this drive to privatize everything, to turn everything into securitized cash flows: charter schools, private prisons, and the endless extension of globalization into a global trade regime, which makes national government obsolete and superfluous. We are looking into the abyss, staring dystopia in the face, and, yet, we are afraid to tinker with the fictional Arthur Jensen’s “primal forces of nature”, afraid of the consequences of saying, no, of opposing this headlong rush into a plutocrat’s neo-feudalism.

I don’t say that the hesitation is without reason. Revolutions are costly. We are talking about breaking the social contract, to re-write it, and the interruption, the transition, will be disruptive and costly, in the best scenario.

82

Bruce Wilder 11.15.13 at 5:38 pm

Ronan(rf) @ 73: “the changing face of global financial capitalism”

The commentary in the linked essay seems like so much gobblygook to me, but the wild gyrations, which they, apparently, cannot explain, look to me like the wobbles of a spinning top, which is slowing to stop.

83

Trader Joe 11.15.13 at 6:55 pm

@78
In the context I’m referring to $75-$175,000. In the NY metro area, this is an amount that would generally allow someone to rent rather than own – but not really pay for private schools and houses in the Hamptons. Its a group that gets hit hard by city, state and property taxes but doesn’t make so much that they can hire people to help avoid them.

I’m not suggesting at all that these are low wage positions, far from it – but these aren’t income levels one would associate with the 1% either. These are senior line/admin positions and junior supervision positions that represent a meaningful percentage of the core workforce of a Wall Street investment bank. The carry out functions like tech, compliance, marketing, and admin support and have jobs quite similar to what you’d find in any Fortune 500 type organization. You’d have to eliminate about 100 such people to pay for one Dick Fuld.

84

bob mcmanus 11.15.13 at 7:17 pm

I don’t know what it would mean to “kill Capital”.

How about a Mega-Jubilee. Burn all paper, void all contracts. Stocks bonds mortgages credit card bills student loans all the fictitious capital, all the re-ification of social relationships. Maybe ID’s and courthouse records. Burn it all. Make the social real.

Your neighbors agree you live there, you keep your house and the Van Gogh on the wall. In any case, have a meeting and talk.

So what happens to the factory with its assembly line and parts? By me, it isn’t as if the stockholders can claim it. Maybe syndicalism, maybe something else. But the means of production survives. Is the drill press still “capital” without any paper?

(I bet the second day workers get bored, go to the factory, tire of the endless discussion, turn a few bolts. Shopkeeper will open his doors. Somebody will truck food.)

Gov’t can print to get a flow going.

Something close to this has happened, in countries that lose wars badly. Production comes back. Maybe we get the same old hierarchies. Maybe not.

What happens after a natural disaster? Do people get all selfish and unhelpful?

When the paper is everything, controls everything, matters infinitely more than what you can touch and hold and build and assemble…burn the paper. But has to be all of it.

85

ZM 11.15.13 at 7:26 pm

bob mcmanus,

“What happens after a natural disaster? Do people get all selfish and unhelpful?”

I think it depends on the culture, access to material and social resources, the people in power amongst other things. The different responses to New Orleans versus the Queensland Floods versus Haiti versus some responses to Hurricane Irene and so on…

86

Map Maker 11.15.13 at 8:53 pm

“The prosperity of plutocratic Manhatten entailed destroying Detroit and Akron and much of the manufacturing midwest — did anyone worry about those cogs, as their jobs, pensions and homes were taken from them. “

Interesting given the cheap “volk” jabs up thread … what did liberals in the west doto improve the living standards in China, Vietnam, and Indonesia at the expense of the rich in the west, and if not, why not?

What does low skilled, undifferentiated labor deserve to be paid in Detroit or Chengdu? Why should people who live in Michigan earn 10-30x those who live in Sichuan? Love it or hate it, globalization and the global movement of capital have done a tremendous amount to lower inequality across countries, even as inequality increases within countries.

87

Mao Cheng Ji 11.15.13 at 8:57 pm

Capital dies hard, and it’s not a matter of destroying the records. To kill Capital I suspect you’d need an anarchist organization. With a militant wing. I’m aware of two precedents: pre-Franco Catalonia and Makhnovshchina. Both were fighting all the time.

88

Ronan(rf) 11.15.13 at 9:09 pm

89

mattski 11.15.13 at 9:24 pm

ZM,

so I am not sure if the couple of commenters who have been outraged enough to suggest I write differently have trouble understanding words

Stop your gabbing? It depends what you mean by gabbing. Rambling remarks, yes. Using the comment thread to “think out loud,” yes. Say anything at all, no. I wouldn’t guess you’ve gotten feedback from a place of outrage. Rather, impatience. It isn’t fair or appropriate to use the thread to think out loud, at least not on a regular basis.

90

BarryB 11.15.13 at 9:25 pm

John, I liked the piece a lot. I hope you don’t mind, but I put up a link to the Jacobin site of it on FB. I should have asked first; so if you do, just tell me, and I’ll remove it.

91

godoggo 11.15.13 at 9:30 pm

I want some pudding.

92

alex 11.15.13 at 10:35 pm

My thoughts.

(1) JQ uses financial sector to mean financing activity. Fair enough. But lots of the stats include jobs like management accounting, which produce value through the management of more efficient industrial processes. There doesn’t seem to be much distinction between finance in the broad sense and financiers.

(2) JQ says the set of retail banking hasn’t changed much. Trueish (there’s greater range of loans and insurance products than there was), but there’s greater penetration, more of the population have bank accounts, mortgages, credit, etc. and that’s useful.

(3) Is the real transformation in corporate and international finance? Wealth and asset management has also seen expansion. The increase in share trading volumes isn’t driven by corporate holdings – m&a activity or investment holdings by real estate or insurance firms – they’re long term decisions. It’s private wealth management behind the trading. Real corporates don’t churn their assets like that.

(4) Has the financial sector maximised growth? Well no, but why should it. The rich are more risk adverse than the poor. As people/society gets richer they use finance to protect against risk, this will reduce return and society as a whole will be poorer than if they didn’t. I agree that fraud and diversion of assets are harmful and have happened. But some of this just legitimate risk preference.

(5) Moaning about fx volatity AND moaning about derivatives separately seems confused. Corporates use derivatives to remove fx risk, investments that are crazy when unexposed are a great idea when hedged. If there is genuinely large risk you can’t blame people when they try and hedge.

(6) Discussing finances role in investment through managers vs shareholders perspective is a bit odd. The major constraint on investment decisions is and has always been the extensive and binding conditions and convenants that come with any form of debt financing.

93

The Raven 11.15.13 at 11:12 pm

mojrim@36: “So let’s write the new story, something grounded in the American mythology of self-made bootstraps.”

Isn’t that the Horatio Alger story, which has already been co-opted? These things are like blades which turn in the hand. Even the fascist one—love of one’s people is a healthy thing, so long as it doesn’t mean hate of one’s unpeople.

I think the story we need is one of the reestablishment of law and justice. Isn’t that what “hope and change” meant, after all? But Obama was a poor carrier of that standard, and matters also have not gone well in other countries. Which returns me to my third paragraph, we need to both have the “right” ideas and put the “right” people in charge. But how to do that?

94

The Raven 11.15.13 at 11:18 pm

There is at least one clear thing to do, then: fix the mass media. Isn’t that one of the huge sources of our current problem? Abrogation of the anti-authoritarian media concentration laws is one of the, if not the main, sources of our problems.

95

Asteele 11.15.13 at 11:52 pm

86 absolutely no policy decision in the United States is made for the Benifet of the poor in the third world. That is just a smoke screen which gets deployed whenever it is convienent to protect extremely wealthy people in the US. I however would support a massive tax increase on the wealthy the entire proceeds of which would be checks sent to Vietnamese farmers.

96

Antoni Jaume 11.16.13 at 12:47 am

Watson Ladd 11.15.13 at 6:37 am

you wrote:
The “Great Risk Shift” ignores what employees are discovering today: pensions had risks that were not priced in when they were issued, concerning the solvency of the promiser. With defined contribution plans these risks vanish.

Now since I was not sure about defined contribution I looked a little and found:

Q&A: Should you be worried about defined contribution pensions?
http://www.bbc.co.uk/news/business-24159233

What is a defined contribution (DC) scheme?

This is a scheme where both the employee and the employer pay contributions each month. Those contributions are usually invested into shares or bonds.

The ultimate size of the pension pot depends on how well those shares and bonds perform, and on the amount of charges that are deducted for management fees every year. When they retire, savers use that pension pot to buy an annuity, which will pay them an income for the rest of their lives.

Under DC schemes, workers carry the investment risk, and there is no certainty about what they will receive in retirement.

So yes, to the corporations, “With defined contribution plans these risks vanish.” because “Workers carry the investment risk.” I do not find that really interesting for workers.

97

QS 11.16.13 at 3:00 am

@ John Q.

A political strategy based on cutting the financial sector down to size has more promise for the Left than any alternative approach now on offer, and is a necessary precondition for a broader attempt to make the distribution of wealth and power more equal.

What of the free trade regimes that have wholly undermined the capabilities of organized labor? Needn’t a new form of import substitution industrialization be paired with a reformed finance sector? And, in addition, stronger federal protections for workers, such that the Boeings of our country cannot leverage Texas’ and South Carolina’s absurd politics over workers in other parts of the country?

The popularity of Graeber’s post reveals that when it comes to our quotidian existence, our bullshit jobs are more visceral than the finance behemoth. Yet we focus our critique so predominantly upon finance when there is a second elephant in the room.

98

Watson Ladd 11.16.13 at 4:22 am

Antoni, would you rather loan your life savings to one business or many? Put it that way and it is clear that defined benefit pensions are an enormously troublesome instrument.
Sure, the stock market is volatile, but it isn’t as though 20-somethings don’t have the time to make up losses, and 60-year olds can always buy bonds and sell stocks, like just about every investment advisor ever has recommended. But there is no way to shed the exposure to the agency guaranteeing a pension. And if you make the assets bankruptcy remote, why not just give them to the people who will benefit?

@Trader Joe: I’m sure they can find other jobs in the NYC area that pay well if the proposed policy changes are welfare enhancing.

99

ZM 11.16.13 at 4:34 am

“Sure, the stock market is volatile, but it isn’t as though 20-somethings don’t have the time to make up losses, and 60-year olds can always”

Bringing in the models of the climate and incorporating possible feedbacks, I’m not sure 20 something’s will be able to make up those losses Watson. You’re guilty of wishful thinking here I believe.

100

john c. halasz 11.16.13 at 5:33 am

I’m in very broad agreement with JQ that the financial sector needs to be down-sized with respect the the rest of the global economy. And I’m fairly sure that JQ is well aware of the changes that have occurred over the years in the way that the banking and financial system “works”, (though it’s not clear to me how familiar he,- or many other working macro-economists,- are with the specific operational details of the current set-up, else they might have be a good deal less surprised by the crisis it wrought). But still, there’s no simple going back to the simpler world of ordinary, “traditional” commercial banking and tightly regulated financial “markets”. The brave new world of structured securitizations and derivatives, together with vast international financial flows won’t easily be stuffed back into its bottle. (And not because it is somehow more “efficient”). There’s nowhere to go but forward, “sublating” that system rather than restoring some fictional status quo ante. After all, just stripping away the financial economy might just serve to reveal the bare, forked workings of the so-called “real” economy and its deficiencies.

Which is why the “historical” diagnosis of the problem matters to any prognosis, let alone “cure”. In the past, JQ has subscribed to a conventional NK account of the 1970’s stagflationary crisis, which gave rise to the neo-liberal “solution”, whereby it was due to cost-push inflation, with the prime “cost” being excessive wages. (In addition, poor monetary policy is often blamed, ignoring the fact that with the sudden switch from a fixed to a floating FX system, the conditions under which monetary policy would have operated were likewise suddenly changed). But I suspect that there were “deeper” causes at work having to do with the dissolution of the Bretton Woods arrangements,- (and it was European resentment against the unilateral U.S. action that lies at the root of the ill-fated Euro project),- and that the subsequent rise of financialization goes together with the increase in corporate globalization, as a means of restoring and maintaining the rate-of-profit, above all else. The Bretton Woods arrangement was meant to allow each country to adopt its own policy regime, while balancing out the “structural” imbalances that might result with regulated FX adjustments, while limiting the effects of international financial flows through capital controls. Without such a coordinated international system, financial flows came to rule the roost and policy ineffectiveness was not just an abstract critique, but a real problem. Since what amounts to FX arbitrage came to outweigh investment in real productive capital. How that problem is to be remedied, (in a world without any hegemon), amounts to the question going forward.

As to claims that the neo-liberal era led to decreasing global inequality, if rising intra-national inequality: 1) such claims rest upon disaggregating the global population into a set of individuals and then re-combining the results, as if that were how economies actually operate; 2) much of the claim rests on the case of China, and to a lesser extent India, as well as the raw commodities boom of the naughties, when both China and to a lesser extent India were, “free riding” on the “Washington Consensus” through maintaining capital controls and a greater degree of domestic regulation; 3) there is no evidence that the wage share of global output has risen and the profit share has fallen and, since S=I is a short-run accounting identity, there is no evidence of a “global savings glut” as opposed to huge CA imbalances, since both S and I have been declining marginally; and 4) counterfactually, what would have been the case under a different global trade and FX regime, since one would expect rapid productivity catch-up in developing countries anyway, without requiring declining developed country productivity or incomes?

101

Lee A. Arnold 11.16.13 at 5:34 am

A BIS paper finds, “First, financial sector size has an inverted U-shaped effect on productivity growth. That is, there comes a point where further enlargement of the financial system can reduce real growth. Second, financial sector growth is found to be a drag on productivity growth. Our interpretation is that because the financial sector competes with the rest of the economy for scarce resources, financial booms are not, in general, growth-enhancing.”
http://www.bis.org/publ/work381.pdf

102

john c. halasz 11.16.13 at 5:40 am

Also Andrew Halbane’s paper on the “doom loop” of our current global financial system. Google it, ya’ll!

103

john c. halasz 11.16.13 at 5:40 am

Haldane

104

Lee A. Arnold 11.16.13 at 6:46 am

Tax financial profits enough to pay for healthcare reform. The taxpayers bailed-out finance to the tune of about US$7 trillion. Yet they never thanked us.

105

Lee A. Arnold 11.16.13 at 6:59 am

Another way to handle the financial system would be to print the money for public goods and the welfare state: i.e., directly monetize the government’s economic functions. Make a new historic case for the monetary authority also being a real production entity for certain goods. A new wrinkle for modernism. This presents the problems of more rent-seeking and inflation in the public arena, yet those problems may be more tractable here, than when hidden in the bubbles of private finance. I mean, whom would you rather have take you the cleaners? At least we can vote the public bums out — we clearly have no such control over the scumbags and welfare queens on Wall Street, though they hold everybody else by the gonads.

106

Tim Worstall 11.16.13 at 10:14 am

This slightly puzzles me:

“Overall, it seems reasonable to conclude that Wall Street in its various forms accounts for around 20 percent of total US income, a share comparable to that of the US government.”

Seems like a very high number. Willem Buiter has said that The City is around 4% of UK GDP. And it’s difficult to think of the US as being more reliant on Wall Street than the UK is on The City.

What is it that I’m missing between these two numbers? Something definitional I assume….

There’s also an interesting snippet about the effects of shrinking the financial sector. The EU ran the numbers on the imposition of a financial transactions tax. The aim of which is to remove some of that speculative froth from the sector, to shrink the sector.

Their finding was that doing so would shrink the economy as a whole by 1.8% compared to an economy in which the tax was not imposed (and thus the sector shrinks). The mechanism was, at least as I recall it, a rise in the cost of capital to corporates.

That particular method, at least, of reducing the size of the financial sector would seem to be not all that desirable.

107

Barry 11.16.13 at 11:52 am

Watson Ladd:

“Antoni, would you rather loan your life savings to one business or many? Put it that way and it is clear that defined benefit pensions are an enormously troublesome instrument.”

Please go have a random person on the street fill you in on how pensions work, because they’ll know more than you.

“Sure, the stock market is volatile, but it isn’t as though 20-somethings don’t have the time to make up losses, and 60-year olds can always buy bonds and sell stocks, like just about every investment advisor ever has recommended. “

20-somethings don’t have the time, because they don’t have the jobs, and will take lifelong hits to their income – and that’s if the economy improves quite a bit.

I’ve watched 50-year olds take stock hits in the past twenty years from which they never recovered.

108

Barry 11.16.13 at 11:54 am

Tim: “Seems like a very high number. Willem Buiter has said that The City is around 4% of UK GDP. And it’s difficult to think of the US as being more reliant on Wall Street than the UK is on The City.”

This is probably the FIRE sector, as opposed to The City.

109

david 11.16.13 at 12:14 pm

Tim: ” the EU ran the numbers” on HFT. Can you point me to that?

110

Ronan(rf) 11.16.13 at 1:10 pm

“As to claims that the neo-liberal era led to decreasing global inequality, if rising intra-national inequality: 1) such claims rest upon disaggregating the global population into a set of individuals and then re-combining the results, as if that were how economies actually operate; 2) much of the claim rests on the case of China, and to a lesser extent India..”

(1) Regardless, that still doesn’t dispute the fact that it has led to an increase in living standards for a huge amount of people globally.
(2) There has also been sustained growth throughout Latin America, East Asia and (more recently) Africa. Much of it might rest on China and India, but their size shouldnt dwarf the fact that it has happened throughout the world, in a number of differing contexts

“4) counterfactually, what would have been the case under a different global trade and FX regime, since one would expect rapid productivity catch-up in developing countries anyway, without requiring declining developed country productivity or incomes?”

What is the hypothetical? I’m more than happy for there to be an alternative but never see it spelled out. BW wasn’t going to last or allow that kind of development outside the West (afaict) so what are the other options?

111

Agunnoe 11.16.13 at 1:48 pm

“How about a Mega-Jubilee. Burn all paper, void all contracts. Stocks bonds mortgages credit card bills student loans all the fictitious capital, all the re-ification of social relationships. Maybe ID’s and courthouse records. Burn it all. Make the social real.”

Sounds like a great idea to me! Great article and good discussion.

Reigning in finance without seriously addressing the ills of advanced, ahem Monopoly, capitalism is a pipe dream. Finance is a symptom, not the cause of our current condition. Capitalism itself must be challenged and this requires mass mobilization and agitation. I think this is where our intellectual and physical engery should be focused.

112

Jason Weidner 11.16.13 at 3:56 pm

There is a large and growing literature on the causes and consequences of financialization. Much of it is referenced in this paper, which analyzes the mechanisms of financialization in Brazil and South Korea: http://researchonmoneyandfinance.org/media/papers/RMF-38-Painceira.pdf

113

Tim Worstall 11.16.13 at 5:07 pm

“Alex Tabarrok and Brad DeLong have suggested that the apparent inverse relationship between earnings and the social value of work done is simply an illustration of “diamond-water” paradox, that prices and wages are determined by marginal, rather than absolute values and that marginal values reflect scarcity as well as utility. Peter Frase refutes this claim in both empirical terms (noting for example the fact that the price of diamonds is set by the De Beers cartel rather than pure market forces) and as a resurrection of the discredited marginal productivity ethics of the 19th century.”

That’s also a bit odd. Because if it wasn’t the marginal supply of diamonds as compared to marginal demand that created the price then the De Beers market manipulation wouldn’t work. For what they do is advertise heavily to increase the demand and also buy in diamonds to stockpile in order to reduce the effective supply. It is these two that produces that high price. Which it couldn’t if it were not the margin that determines the price of course.

114

Mao Cheng Ji 11.16.13 at 5:16 pm

Ronan(rf) 109, “Regardless, that still doesn’t dispute the fact that it has led to an increase in living standards for a huge amount of people globally.”

This is a different claim than “decreasing global inequality”. A subsistence farmer in China becomes factory worker, producing a hell of a lot more and having a slightly higher living standard; that doesn’t sound like a decrease in inequality.

I would argue that subsistence farmers don’t participate in the national (let alone global) economy, and therefore (in a certain sense) they are not a part of any calculations of equality/inequality. They consume exactly as much as they produce. Once they become factory workers, the pattern of distribution of the value of their labor could easily increase inequality, even as their living standards go up.

115

Paine 11.16.13 at 6:09 pm

The eruption of 08 within the 35 plus year financial securitization project

Led to a huge bi partisan two part treasury department bail out operation
And a less visible but far larger contemporaneous FED op

The second part of the treasury bail left puke all over the hands of the bama admin

The stimu – less was abject but the real political failure was bail II

Barry after his inauguration
needed to do just what JQ recommends now
Blast wall street to smithereens

While the street was down chop it’s head off

Of course running for office on a plank such as:

“if the street implodes on my watch
I’ll slice out it’s brain ..drive a stake thru it’s carborator and …rid us of this giant squid
once and for all”

Might not win a majority of cast votes
in a time of easy prosperity

But
The movement toward such a plank needs to begin yesterday

116

Paine 11.16.13 at 6:18 pm

Btw Concern about the constraints and ramifications
Of today’s global financial markets is not mis placed in this context
Yes
Amerika the great exploiter nation
has the potential in a flash
To execute a system of full national financial autonomy

However I recall Thors’ battle with ocean

The serpent’s head is wall street and like Thor we can throw a rope around its neck and pull like hell
but it’s body encircles the globe

117

Paine 11.16.13 at 6:28 pm

Well up stream
Bruce wilder generated a two f’er
His fist comment was exactly dead on

His second the not “Ninny knock Knees”
None the less greatly under estimates the current hegemon’s durability

Yes a stab at wall street would indeed ramifying to the four quarters of mother earth

But as Bruce in comment one nicely suggests
The time to strike will come in the midst of one of WAlly World’s global convulsions

118

Paine 11.16.13 at 6:38 pm

The cry “Kill capital ” must rise from the throats tens of millions of raw footed
Job class battered plebeians
Before we can imagine concretely
A structual reformist agenda like the progressives – socialists
Developed at the turn of the last century

Now let us concentrate on fomentation of rage

119

hix 11.16.13 at 7:55 pm

Consumer finance is no side show. That too has become much worse and takes away far too much money for negative value added. Im a young guy, and even i can remember a time when banks did not push intentional complex warrents, whos only upside is that more fees can be hidden in them on unsuspecting retirees. The privatication of retirment savings has opend up a hugh new extortion like fee level market, subsidiced by the government through tax incentives.

120

Ed Herdman 11.16.13 at 10:24 pm

The professional bridge enthusiast (ugh) isn’t interested in having a discussion with Cam’ron – I’ll introduce what motivates Cam’ron later. The professional economist or academic, of any bent, is generally not adept – often not even interested – in adapting their language to that of the person on the street, in addition to not changing their research focus.

I think the major question isn’t how social media shape the discussion, so much as that the participants are insulated (and insulate themselves) from having an audience with people who are contrary-minded. Twitter – yeah, that’d be an interesting study, but it’s such a thin platform. I think analyzing that would bias the result towards blaming poor people for having to keep hustlin’ and the resulting low engagement rate with economics, rather than shifting to economists working at relative leisure on topics that interest them actually searching out topics of interest to the average folk. (This may be a distortion of what was intended, but I hope it stands as an avenue of related commentary.)

There’s another aspect to this – “political correctness” for conservatives. Perhaps respecting the new, distorted, form of the classic Bowlesian (?) “smaller piece of a bigger pie is still a larger piece” argument, which is apparently displaced by “larger financial markets are good for everyone,” is a sacred cow for the right and intended to be respected as a form of political correctness towards conservatives, without engagement with the truth of the statement. The correct approach is to take this right-wing replacement for the old New Dealer optimism at face value (to be reasonable that old view isn’t obviously completely accurate – full employment vs. inflation doesn’t seem to have been, if what I have read is accurate, a major concern weighing on New Dealer optimism, though it is now).

What was Cam’ron’s concern? Something that isn’t covered by Mankiw’s fatuous pleasantries about kidneys:

“you’re supposed to go to f’n high school, go to college, get out of college, make 30,000, after that, they gon’ take taxes; after taxes you down to 20,000; you gotta give 10% of that for your student loans, that you been goin’ to f’n school payin’ for, now you down to f’n 12,000 a year, you’ve rent is 500 a month, now you down to f’n 5000 a year, you’ve gotta eat; HOW YOU GON’ GET FRESH?” – Flea

(You can see the scene online – warning: Language!) https://www.youtube.com/watch?v=imrz3Nsnhw8

Extra credit for putting the head of a “too big to prosecute” bank in Flea’s place giving the narration. “We aren’t making real social progress here, man!”

As a final comment I wanted to note that I am not totally despairing about the role of capital holders to shape markets positively – bringing order through agreements and standards (not on the order of cartels, but things like computer industry agreements, or standardized shipping containers, at the very least) but then people demand you don’t make a distinction between that and clear examples of egalitarian-free moves like profit hoarding strategies against inflation (gold standard fanatics) and rent seekers. Anyway that’s more than enough from me for now.

121

Ronan(rf) 11.17.13 at 5:05 am

” absolutely no policy decision in the United States is made for the Benifet of the poor in the third world”

It depends on the policy I guess, but some are actually (specifically) drafted for the benefit “of the poor in the third world”. Maybe not all, but then again who cares?

“This is a different claim than “decreasing global inequality”.

Mao, as much as I like you, I dont give a sh*t. This is the narrative we’re stuck in; neoliberal plutoracy vs social democratic workers Utopia, and I dont really care. Maybe one is better than the other, maybe not. It’s only rhetoric at this stage, so it doesnt really matter

122

Mao Cheng Ji 11.17.13 at 9:35 am

“neoliberal plutoracy vs social democratic workers Utopia”

well, according to the classical doctrine that’s the narrative for the developed, industrial world. For China, India, and the rest of the pre-industrial world (although I suppose China might already be out of it) the narrative is still “capitalism is a progressive historical stage”. I guess this has gotta be one of those ‘unity of the opposites’, or ‘negation of negation’ things.

123

Tim Worstall 11.17.13 at 2:02 pm

@ 109.

http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/impact_assessment.zip

Pages 33 and 50.

The tax would raise perhaps 0.1% of GDP. But GDP would shrink by 1.8% or so of GDP as a result of the tax. At the margin tax is some 40-50% of any change in GDP (must be, tax is 40-50% of GDP in EU countries). Ergo, raise 0.1% of GDP in FTT and then lose some 0.9% in other taxes.

Or page 6 of this for a page on the argument.

http://www.iea.org.uk/sites/default/files/publications/files/Financial%20Transaction%20Tax_0.pdf

124

bjk 11.17.13 at 5:03 pm

There’s no quantification here of how big, exactly, the US financial system is, or what percentage of US assets are devoted to purely financial activities, however you want to define that. To simply throw around percentage of GDP is not helpful, because that’s a bit of a made up number, as it measures value added, whatever that is. We know that roughly $15T of US capital is productive capital, excluding structures. So how much is dedicated to the financial sector? My guess is that the total tangible book value of US banks is somewhere in the neighborhood of $1.5T, but that could be off by plus or minus $.5T. Of that amount, I’d say $200-$250B is dedicated to investment banks. That means that the financial transactions sector is roughly 1/60th the size of the productive economy, measured by net assets. So does that capital earn an excess return? Most banks report that their broker-dealer divisions earn about 5% on capital. To put that in perspective, avg return on capital amoung US corporations is currently at aboutt 15%. So the amount of capital devoted to financial intermediation is not that large, and the profits are sub-par.

125

Sebastian H 11.17.13 at 6:41 pm

Many of the discussions of the financial sector could be helped with attention to diminishing returns. Take the discussion about high frequency trading; it is usually defended by alluding to the importance of liquidity. I can see the huge gains to liquidity by taking something traded once a year to something traded monthly, and large gains going from monthly to daily. I even understand how you can smooth out week to week crashes of important commodities by trading hundreds of times per day. But i strongly suspect that the additional liquidity gains from going from seconds to nanoseconds is not worth the risks caused by the necessary lack of real time oversight.

Similarly various actions by mega banks are defended under the enormous importance of “access to capital markets”. I agree that it would be a worse world if every entrepreneur had to go to the neighborhood savings and loan. But that doesn’t mean each increment of additional access to capital markets is equally good. It seems plausible that we could choke off “producing capital markets by bundling bad loans in difficult to understand ways, selling them, and simultaneously making bets they will go bad” without causing a material decrease in the productive use of capital markets.

126

Bruce Wilder 11.17.13 at 6:42 pm

Ronan(rf): This is the narrative we’re stuck in

Indeed.

I was reading The Eighteenth Brumaire of Louis Napoleon yesterday — Marx’s essay, which featured the thesis that history repeats itself, first as tragedy, then as farce. The essay is remarkable for its bitterness and for its many insights into ideology as a narrative rationalization, drawn from a vocabulary of half-remembered past events, for the self-interested motives of what Marx labeled class action. Marx was thirty years old, a German Hegelian in 1848, the year of revolutions, and four years later, he had been exiled to London, capital of the industrial revolution — what a way to spell irony!

I’ve always been drawn to history, and to the notion shimmering behind all the narratives of history’s cycles, and their seeming inevitable course, that there’s some predictive power there. If you live through an episode, when some seemingly permanent feature(s) of the world around you shakes and falls in some earthquake, and you are paying attention and placing hope and fear in the sequence of events, which are dramatic, and maybe surprising, but also logical in some way, you cannot help but want to grab the power promised by grasping the nature of that progression. The Greeks, I’m told, invented history, amidst the tumultuous politics of their numerous city-states, and gave us the theory of anacyclosis, which isn’t half bad as political science, two millenia later. Hegel could talk seriously of world-historical figures, because he had quite literally seen a man-on-horseback bring down a thousand-year reich in an instant, and Marx — well, 1848 was a quite a year!

Humans are story-telling animals. We organize society and civilization by fictions. Money and finance — the means by which we keep score in the economic games we play — is an elaborate set of fictions. We can’t escape fictions; they are in our nature. The call to tell the truth is just a rally for a better fiction, to wake from one dream in order to fall into another trance. Every effective political argument is more of an hypnotic trance induction — or an attempt to wake the sleeper, as the case may be — than any sort of Aristotelian ideal of valid arguments strung together in rhetorical proof for the rationally critical listener.

Flooded as we, today, are, by narrative fictions — all of us consume orders of magnitude more drama as entertainment than generations past — I keep thinking that we might become more critical of the competing narratives we are offered (More John Holbo, please!), and that our consciousness might be raised, that we, collectively, might adapt better, faster to our circumstances. We seem to be losing an arm’s race with the purveyors of rich man’s propaganda, but that just makes neoliberalism an overripe target of opportunity for Jacobins, no?

The other thing I read yesterday was a blogpost by the eminent historian, David Kaiser. He wrote:

Seventeen years ago I reviewed William Strauss and Neil Howe’s new book, The Fourth Turning, for the Boston Globe. As most of my readers here are well aware, they had divided American history into 80-year cycles in their earlier book, Generations, and in 1996 they predicted that a great national crisis would develop sometime in the next ten to fifteen years. In one paragraph, I discussed their tentative speculations about what the crisis might look like, and added another thought of my own.

The Fourth Turning is weakest on the point of greatest practical interest: what, exactly, the new crisis is likely to involve. The authors present a series of scenarios combining, in various ways, a financial crisis, a collapse of federal authority, a racial or regional civil war, or an international crisis perhaps involving terrorism — but none of them seems completely convincing. Yet here, too, history is on their side. No one in the 1760s would have predicted the American Revolution; almost no one in 1928 would have foreseen either depression or world war. Only in the 1850s was the shape of the coming crisis fairly clear, and even then few if any would have predicted war on such a scale, fought to such a drastic conclusion. We must watch, perhaps, for problems that fashionable solutions can only make worse, since these are the ones most likely to spin out of control.

I added the emphasis, above.

127

bob mcmanus 11.17.13 at 6:58 pm

124: An inherent error of quantification economics, like saying electricity production is a tiny part of GDP, so we needn’t worry about it.

But I cam back to revisit my drill press mentioned up in 84

A drill press is:

1) A rock
2) with labour and a (commodity) market, productive capital
3) with the right paper (maybe electronic), a capital asset, finance.

The one I am not happy with is 2). I am working toward a post-post-capitalist transindividualist economics, in which everything (Gary Oldman:EVERYTHING) has been monetized, commodified, rendered into fictitious capital and economies are running on myths, expectations, mystified social relations, running on fumes.

Obviously we still have cheeseburgers and Ipads. But are they worth anything anymore as use-value or do they exist, as we exist, only for exchange value.

128

bob mcmanus 11.17.13 at 7:07 pm

One of five headlines, with Doris Lessing and Airbus crash, on Yahoo:Thor Box Office $38 million.

Why do we care? When we make the cheeseburgers and then walk to the ticket booth, is our contribution to a studio’s surplus as or more important than the quality of the movie?
Do we ourselves now view our consumption as a factor of production?

129

Bruce Wilder 11.17.13 at 7:12 pm

bjk @ 124: There’s no quantification here of how big, exactly, the US financial system is, or what percentage of US assets are devoted to purely financial activities, however you want to define that. To simply throw around percentage of GDP is not helpful . . .

One can look at the resources employed by the sector or the income claimed, but size is an issue, only to the extent to which preserving the sector’s size, and its claims on the best and the brightest or on national income as the expense of other sectors, becomes a political imperative.

Money and finance is how we keep score. The financial sector cannot be isolated from the rest of the economy, in the way some particular manufacturing industry might; its activities pervade everything. If its activities enhance productivity at the margin, as Quiggin pointed out, then pursuing policies, which might have the consequence of shrinking the sector, would be destructive. But, if its activities are parasitic at the margin — and they are, make no mistake — policies of preserving the sector, with its rampant fraud and predation intact, is destructive to the world economy.

130

Ronan(rf) 11.17.13 at 7:17 pm

re financialisation of the US economy

This might be of interest

http://cas.umkc.edu/econ/economics/faculty/wray/631Wray/Week%207/Krippner.pdf

and Krippners book whih builds on this

131

LFC 11.17.13 at 7:35 pm

mcmanus:
One of five headlines, with Doris Lessing and Airbus crash, on Yahoo:Thor Box Office $38 million.

FTR, if you’re referring to the crash in Russia, it wasn’t an Airbus. Was a 23-year-old Boeing 737 operated by Tartastan Airlines, a regional carrier. (This I gleaned from the NYT article prominently linked on Google News.)

132

bob mcmanus 11.17.13 at 7:45 pm

Krippner’s good

Re:Financialisation. Marxism 301: The productive base and the ruling social relations create and reflect each other. We have financialisation because our social relations needed it. Most of us aren’t farmers or assembly-line workers anymore. There is no backwards or reversals in historical materialism.

From Varoufakis Modern Political Economics, which is the long version of <i.Global Minotaur

The rulers’ social power was, therefore, as much a result of their soldiers’ spears as it was founded on the consent of the powerless to their rulers’ authority. It is for this simple reason that social theory matters so much: our way of under standing our social order, our social theory in other words, is the primary input into the ways in which our social order is pre­served and reproduced. Dynamic societies built their success on two production processes unfolding in parallel: manufacturing surplus and manufacturing consent regarding its distribution. The ‘mind forg’d manacles’, as William Blake called them, are as real as the hand forged ones.

We could say the Fordist era was about using consumption to manufacture production to manufacture consent.

In a post-Fordist post-capitalist post-scarcity society the distributable surplus will be extracted almost entirely from the manufactured consent. We with our labour will manufacture our own consent, by managing our IRAs and HSAs we legitimate Wall Street.

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Bruce Wilder 11.17.13 at 8:08 pm

The financialized economy is definitely in symbiosis with the b.s. economy. I tend to see the exemplar as Starbucks, rather than my pathetic IRA (how did Romney stuff his IRA with $x millions, again?): college-educated people working for near-minimum wage, the humiliation eased by being called barristas, serving over-priced, but cleverly labeled coffee from shops so ridiculously numerous as to give a new meaning to monopolistic competition.

Drinking water is another illuminating case study: the 19th and early 20th century pursued the scale economies of municipal water supply, a public good usually publicly provided. (Though New River, in London was a private business corporation of ancient lineage.) Now, starved of funds and deprecated for incompetence, the municipal water supply must “compete” with private purveyors of water filtering and plastic (landfilling) bottles, who actively promote propaganda to undermine public confidence and promote people ordering brand-name water in restaurants, etc. This is what our economy consists of, at the margin — this is why we are choking the oceans with our plastic debris, fighting wars or destroying the groundwater to get the oil to make the plastic to make the bottles . . . it is a madness. If this is Capital, by all means, let’s kill it!

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mattski 11.17.13 at 10:15 pm

Marx’s essay, which featured the thesis that history repeats itself, first as tragedy, then as farce.

There goes a social scientist who can’t tell the difference between events of history and his feelings about such, no?

The Greeks, I’m told, invented history

Thucydides, I think, had a clarity of vision far surpassing Marx:

Of the gods we believe, and of men we know, that by a necessary law of their nature they rule wherever they can.

We organize society and civilization by fictions. Money and finance — the means by which we keep score in the economic games we play — is an elaborate set of fictions. We can’t escape fictions; they are in our nature.

Yes, we organize society with myths. NO, money and finance are not that sort of fiction! Money is neutral. Law, that is another matter entirely, and where our focus should be.

As smart as you are, Bruce, can’t you see the perversity that results from Leftism taken to extremes? bob mcmanus is a living, breathing Reductio. Oy vey.

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Matt 11.17.13 at 10:55 pm

Drinking water is another illuminating case study: the 19th and early 20th century pursued the scale economies of municipal water supply, a public good usually publicly provided. (Though New River, in London was a private business corporation of ancient lineage.) Now, starved of funds and deprecated for incompetence, the municipal water supply must “compete” with private purveyors of water filtering and plastic (landfilling) bottles, who actively promote propaganda to undermine public confidence and promote people ordering brand-name water in restaurants, etc. This is what our economy consists of, at the margin — this is why we are choking the oceans with our plastic debris, fighting wars or destroying the groundwater to get the oil to make the plastic to make the bottles . . . it is a madness. If this is Capital, by all means, let’s kill it!

People in the Anglosphere need to reduce net CO2 emissions by approximately 80-90% per capita if there’s a hope of avoiding catastrophic warming. Other countries, notably China, will also need sharp reductions for the scheme to work but let’s start at home.

Cutting American CO2 emissions per capita by 85% would mean they fall to 2.6 tonnes per capita from 17.2, putting Americans below citizens of any OECD member. Below Chinese citizens. Below North Koreans. Below citizens of the USSR in 1990. Or, for that matter, below Soviet citizens in 1960. Eliminating plastic water bottles is a rounding error in the grand scheme of American resource consumption. Capitalist manufacture of desire certainly doesn’t help but there is scant historical evidence that industrial non-capitalist societies were/are much better at accounting for and minimizing environmental damage.

I find it a little maddening that humans are facing historically unprecedented challenges in relation to the natural world but the most common responses are vigorous re-riding of old hobby horses. Nuclear Guy thinks that you build a bunch of nuclear plants and the problem is basically solved. Population Guy thinks that you make birth control and abortion universally available and the problem is basically solved. Green Lifestyle Guy thinks that you ride a bike and buy locally and the problem is basically solved. Anti-Capitalist Guy thinks that you eliminate capitalism and the problem is basically solved. Hemp Guy thinks that you eliminate restrictions on cannabis/hemp and the problem is basically solved. Deep Green Guy thinks that you eliminate industry and most humans and the problem is basically solved; he’s correct but only vacuously, in the sense that suicide is a cure for joint pain.

Kill capitalism in an astonishing victory and maybe you’re down to 13.5 tonnes CO2 per capita, like the USSR in 1990. That’s a 22% cut; what do you do for the remaining 58% of the problem? Destroy advertising and the FIRE sector and you achieve a dramatic ecological footprint shrink only if the newly unemployed are left to freeze under bridges, rather like Russia in the late 1990s; otherwise people maintain a level of consumption that is completely unsustainable given current populations and current and historical methods of industry.

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mattski 11.17.13 at 11:27 pm

An inherent error of quantification economics, like saying electricity production is a tiny part of GDP, so we needn’t worry about it.

mcmanus cribbing from Larry Summers. Vintage CT moments.

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roy belmont 11.18.13 at 1:01 am

134 10:15pm:
Money is neutral
Neutral between fiction and truth? Between myth and historical factuality?
Money is a fiction that’s magically transformed by the faith of a believing mass big enough to tip that myth into tangible actuality. No faith in it, no value in it.
Vice versa, i.e. bitcoin, or the € .
Money is only valuable when, if, and because, people think it is. Without that belief intact and big enough to sustain it – it goes away.
Currency is a pile of trinkets without the combined sustained faith in its value of its financial congregation.
Of course there’s nothing like having something in between you and what you need, bottlenecking all other access, to make a believer out of you.

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mattski 11.18.13 at 3:48 am

@ 137

What is your point, roy? Of course money depends on people’s faith in it. I said it is neutral, which means there isn’t any inherent bias in it. It is an extremely useful social convention. Do you deny this? Do you have a theory of a better world without money in it? If you do, why don’t you spill it?

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Peter T 11.18.13 at 4:49 am

mattski

What do you mean by “neutral” or without “inherent bias”?

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roy belmont 11.18.13 at 5:35 am

138-
Yes, we organize society with myths. NO, money and finance are not that sort of fiction! Money is neutral.
It appeared to me you were using “neutral” to describe money in the context of myth and fiction; clearly, ahem, that was not your intended meaning.
As to what I now take to be your point, I’d still quibble with full-stop no-bias inherent neutrality, because I don’t think that exists in any human artifact.
Within a really limited transactional economic setting, sure, it’s just a neutral symbol of labor and value etc. But in the wider field, the whole human thing whatever you want to call it, money’s got all kinds of bias.
The things it requires to exist and be useful aren’t universal or even universally necessary for human survival, until money itself becomes necessary for survival.
It facilitates certain kinds of activities, excludes others, benefits some users vastly disproportionately to other users, and eventually creates the necessity for itself, which is a bias.
Money is inherently biased toward itself.
Anything like a “theory of a better world” that I might have wouldn’t replace or discard money, so much as transcend it somehow.
Briefly, in light of present conditions, where skillful manipulation of finance by a minority of users has led to a kind of social cannibalism – and God knows what else is coming – almost anything, any world.
Barter economies, for one, would probably not have broken the sky.

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hix 11.18.13 at 10:20 am

It does not matter if the money goes to shareholders, bondholders or employees for this debate. So dodgy return on assets or share of asset numbers are not helpfull. Quite the contrary, in countries with a smaller financial sector, the financial sector often holds more assets on own books. The anglo-saxon exchange based finance model, which pushes worthless bonds after 10000 securitication steps on the unsuspecting public, is the one thats more oversiced, but also the one that holds least asssets directly. If you look up return on asset numbers for pure intermediaries (most of which are private and do not publish numbers) those are s sky high too, along with the saleries paid there. Of course a bank cant exceed the return on assets of a risky business by giving low risk loans. As far as the return on equity part is concerend, that one should be -100% anyway considering circumstances.

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William Timberman 11.18.13 at 12:38 pm

It’s interesting, in this context, to watch Carl Icahn putting the squeeze on Tim Cook for an enlarged Apple share buyback. Hard to see the old bastard as anything but an extortionist — like Smaug, he simply can’t resist the smell of gold. Of course Apple is sitting on a huge pile of it, but in all the stories surrounding Icahn’s bullying, nowhere have I seen the idea expressed that the money would be better off invested in more productive capacity than in returning it to the shareholders — who, as I read things, aren’t going to invest it in anything productive either. They just want it, ’cause they consider it theirs.

Hell of a way to run a society…. And mattski, seeing this kind of psychodrama played out over the corpse of our common patrimony for what it is is exactly what makes BW a smart guy, and mcmanus not a reductionist. What not seeing it makes you is hard to judge without further evidence — not that I’m all that eager to collect any.

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bob mcmanus 11.18.13 at 1:57 pm

Here ya go…Finance Depends on Resistance Long, Marxist, and theoretical

Capital is, as Autonomist critics and others do not tire of pointing out, always already a response to the power of its “other” (the working class, the multitude, or whatever we want to call it).24 Keeping this in mind focuses our attention, as critics, on how people make meaning and social life as active subjects, rather than passive slaves to the system of which they are a part. Unfortunately, the recent financial crisis has been an opportunity for bad theoretical habits in Marxist criticism to resurface.

and

Every car advertisement suggests that driving a new vehicle will set you apart form the crowd and allow you to express your (presumably suppressed) individuality. Images and aesthetics of protest are now common fare. Resistance is the cultural idiom of neoliberal financialization.

This is not merely because “resistance” is sexy and sells cars. It is part and parcel of the neoliberal individualization of social life, the systematic destruction of any liberatory or hopeful notion of collectivity, commons, or public participation. But this, in turn, is intimately tied to the forms of agency both that financialization creates, and on which it depends. Today, the financial sector is no longer content to be a realm for capitalists to work together. In an age of neoliberal austerity, it increasingly embraces multiple aspects of social life. From sub-prime loans to micro-credit, from student debt to credit cards, from life insurance to computerized weekend stock trading, from state debts and deficits to global food and fuel prices, finance’s reach today is both more expansively global and more intensively local than ever before.

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bob mcmanus 11.18.13 at 2:13 pm

As far as to charges of reductionism or economism, I would say that for me, to the degree I can separate them, social theory precedes and generates economic theory. And God knows I am not able to totalize or reduce social theory. Cause people/society are indeterminate and non-ergodic, unpredictable.

Marxism, feminism, anti-racism. Currently reading into Goffman and symbolic interactionism. I try on theories and tools like t-shirts. Curse of the auto-didact.

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Patrick C 11.18.13 at 8:18 pm

“Pareto optimal” is just another word for the dumbest sort of hill climbing algorithm.

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mattski 11.18.13 at 11:19 pm

Peter T,

What do I mean when I say money has no inherent bias? I mean that it is a very simple and effective tool created by humans to facilitate trade. I mean that anyone can use money, money doesn’t care who is using it! Yes, there is an illusory aspect to money, which Bruce Wilder pointed to, sloppily in my view, to try and tie it to more injurious fictions which actually do have adverse consequences. For example, the idea that you, and you alone, are responsible for your fate, good or ill. Or–a cruder example–the idea that there is a supreme being judging our actions in accordance with some instructions laid out in a dusty book somewhere.

Money, per se, isn’t the reason for inequality or any of the other social ills we find so offensive. Money is perfectly compatible with a (much more) just society- at least I see no reason to doubt that. If we try to imagine a world without money… What does that look like? A barter economy as roy offers? Do you know what would happen in a barter economy? People would invent money because the obstacles to trade without it are so onerous. (!)

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mattski 11.18.13 at 11:30 pm

roy,

It [money] facilitates certain kinds of activities, excludes others, benefits some users vastly disproportionately to other users, and eventually creates the necessity for itself, which is a bias.

What activities does money exclude?

When you say that money benefits some users disproportionately, are you sure that money is the reason for the disproportion? Might there be other reasons?

“Money creates the necessity for itself.” Well, in the same sense, perhaps, that roads create the necessity for themselves. That is, people use them. A lot. And come to rely on them. Is there some crime against nature occurring here? (Besides the related, although not logically, ecological crime of climate change.)

Barter economies, for one, would probably not have broken the sky.

Would you be enjoying a hot shower, a cold beer, a chat on your mobile phone in a barter economy?

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mattski 11.18.13 at 11:40 pm

@ 142

William, I can’t make out what you are saying other than something along the lines of, “can’t you see what a horrible mess our society is in?” Well, yes. Yes I can. I just don’t see the utility of blaming ‘money’.

And, for goodness sake, I didn’t refer to mcmanus as a reductionist! Yikes.

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Bruce Wilder 11.18.13 at 11:57 pm

mattski, I honestly have no idea what you intend by opposing claims about the neutrality of money to my claim that money is a fiction.

The neutrality of money is a somewhat esoteric topic in economics. I’m not sure what it means outside a quantity theory of money, where it is just an elaboration of the somewhat trivial claim that the unit of account does not matter much.

In a credit economy, or one with active financial markets trading securitized equity and debt, money cannot be neutral, because financial commitments are made in nominal terms. Moreover, in our economy, financial commitments are commonly made in relation to sunk-cost investments, the return on which is at risk and dependent on the exercise of political power and the continuation of rent streams. It is in writing the debt contract that money becomes a high form of fiction.

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William Timberman 11.19.13 at 12:42 am

Money’s neutrality in your sense, mattski, depends on it being a merely a unit of account, and not the weapon of mass destruction that we all know it is. Carl Icahn is a piker compared to the Structural Adjustment Programs of the IMF and World Bank, or the depredations of the IMF and its troika partners in Greece. Can the powerful employ other weapons? Yes, of course they can — and have — but once they’ve discovered money, they rarely have to reach any deeper into their armory.

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Peter T 11.19.13 at 12:45 am

mattski

Your point of view seems to me the standard one – money is a tool, like hammers. The alternative is not to have the tool, to use something inferior (barter). But – and this also looks at Lee Arnold’s question about what is the simplest society that uses money – money is simply not like that. The origins of money help to illustrate this. As Graeber pointed out, quite correctly, no human society uses barter in place of money. What they use is trust or sense of obligation, backed by the local community standards. One can picture this if one thinks about, say, the Australian who has crafted a few extra stone spearheads and brought them to the annual festival up near the gulf country, only to find that there are fewer stingray barbs available for the usual (highly ceremonial) exchange than expected. Does he lug the spearheads back south? Demand five extra helpings of eel? Or hand them over with ceremony, make some gestures indicative of disappointment, and expect that next year extra barbs will be forthcoming?

We know that networks of exchange could both reach long distances (Afghanistan to Egypt well before 3000 BCE) and accommodate the normal fluctuations of hunting, fishing and gathering in communities of a few thousand people, all without money.

Money starts as tokens denoting particular debts, then evolves gradually towards a single standard, then towards a general obligation. And it does this, as most evolved things do, without losing its earlier characteristics. Babylonia and Phoenicia ran complex networks of exchange, both local and long-distance, for millenia, without using coins. And we still do not use coins or banknotes for more than a small fraction of our exchanges. We use various credit mechanisms and, on larger scales, modern forms of letters of credit that would be perfectly familiar to Habiru and Sons c 800 BCE. And all this is money: Visa cards, commercial paper, bank loans, guarantees and so bewilderingly on.

And most of this money is not “neutral”at all. It denotes a particular obligation on a particular legal person or set of persons, even though it is denominated in standard units. And these obligations are routinely manipulated to the advantage of some and the disadvantage of others. They are not roads that anyone can drive on, or hammers that anyone can use, but a vast class of shifting meanings. That a few thousand years of use has solidified them to something close to social rock is not a surprise, but the rock is still in our minds.

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roy belmont 11.19.13 at 1:32 am

147 11.18.13 at 11:30 pm-
What activities does money exclude?
Complete exclusion, you win, money doesn’t give a shit what its non-users do. Marginalization to de facto exclusion, point me, the list is near endless.

…are you sure that money is the reason for the disproportion?
No, I’m not. Money is the thing that enables the reason for the disproportion. The reason for the disproportion is unfettered selfishness directed at the accumulation of money, or, in the common speech, greed. Without money the 1% would have to live in huge granaries, and there would be rats and disproportionate transportation costs and stuff. Not that I’m all about the barter, like I said, anything, any world.
Roads:
That is, people use them. A lot. And come to rely on them. Is there some crime against nature occurring here. (Besides the related, although not logically, ecological crime of climate change.)
If you’d said automobiles use them, or even people-in-automobiles use them, maybe, sort of, but then I’d win that one too, because cars have necessitated the use of cars in order to use the road.
It’s biologically terrifying to be on foot for any length of time on a busy highway, 3000 pedestrians died in traffic in Spain in 2012, etc.
Cars rule the roadway, necessitating the use of cars, to use the roadway. With the exception of motorcycles, a few, public transport, a little, some bicycles here and there, and I did once see a guy with a mule-drawn cart on the Pacific Coast Highway.
The parenthetical is incoherent to me, illogical relation being something I’m unfamiliar with.
You may not believe this true fact, but I live without hot showers, have no refrigerator, and use my idiot phone maybe 5-6 times a month. Just got back to the in-home-internet a few weeks ago, after 5 years without.
Not to mention a steadily growing number of people are quite willing to forego consumer luxuries, which have come to seem but aren’t real necessities, if it would mean their grandchildren were not going to be barbecued or drowned.

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mattski 11.19.13 at 3:25 am

OK fellas. Couple of remarks and I’ll throw in the towel for now.

William, see here for a closer look at the depredations of the IMF.

Peter,

And most of this money is not “neutral”at all. It denotes a particular obligation on a particular legal person or set of persons, even though it is denominated in standard units.

So? What did you expect from a ‘unit of account’??

And these obligations are routinely manipulated to the advantage of some and the disadvantage of others.

Yes. Yes, they are. And is that peculiar to money? No, it is not. The powerful manipulate the weak by whatever means are available. We all know this. Many of us have the experience of having a mortgage, and noticing that the bankers manipulate our installments in such a way that we pay most of their interest UP FRONT. If we re-sell our house after 5 years of a 30 year mortgage… WTF? We hardly made a dent in the principle! But, you know what? That is because bankers succeeded in the political project of tailoring the rules to their advantage. It is not the fault of money!

roy,

Marginalization to de facto exclusion, point me, the list is near endless.

Go ahead, make our day.

You may not believe this true fact, but I live without hot showers, have no refrigerator, and use my idiot phone maybe 5-6 times a month.

You may not believe this either, but most people would prefer a refrigerator and a hot shower. And you know what? I don’t blame them. Also, too, it’s great chatting with you on the internetz.

Peace to all.

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Peter T 11.19.13 at 5:38 am

ah, mattski means “neutral” as in inches or kilos are neutral. It’s just a measurement. Kind of as in grey is just a colour even when it’s an elephant treading on your foot.

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Douglas Knight 11.19.13 at 10:36 pm

the 1 per cent…largely senior executives and the financial sector

Do you have a citation for this?
I don’t have a citation, but I saw a paper that tried to account for the 1 per cent through many more groups and failed to identify much of it.

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